Community banks, institutions with up to $10 billion of assets, are voicing a decrease in concerns related to the risks of regulatory measures. The shift in attitudes is observed less than a year into the second Trump administration, which has been pushing a deregulatory agenda. The latest survey conducted by the Conference of State Bank Supervisors (CSBS) reveals that only 28.4% of the community banks believe that regulation is an “extremely important” risk, a significant drop from 44.1% in the previous year.
Significant Regulatory relief
Mark Packard, the president of Provo, Utah-based Central Bank, explains, “Some of the regulations that we were really concerned about have been put on hold.” He cites the decision of the Trump-era Consumer Financial Protection Bureau to pause its small-business data collection rule as an example. Packard states, “This is big for us because this is an onerous regulation for the bank and for our small-business customers.” He further adds that their customer base, largely independent, do not appreciate the feeling of being tracked or the need to disclose more information than required.
Regulatory Implications and Future Outlook
The data from the CSBS survey, which covered 268 community banks, was released during the Community Banking Research Conference at the Federal Reserve Bank of St. Louis. The findings indicate that the community banking sector expects a continuation of the regulatory relief measures introduced since the start of the second Trump administration. In addition, the Office of the Comptroller of the Currency (OCC) recently announced plans to significantly reduce regulation of the community banks it supervises. This includes eliminating specific examination requirements not mandated by law and tailoring the frequency and scope of exams based on each bank’s size, complexity, and risk profile.
Disproportionate Compliance Cost
Despite the expected regulatory relief, the CSBS maintains that the regulation of community banks is too onerous in many areas. Brandon Millhorn, CSBS President and CEO, spoke at the conference in St. Louis, stating, “Our research confirms what bankers in the audience already know — community banks shoulder a disproportionately high cost of compliance compared to larger institutions.” He further noted that supervisory creep continues to entangle community banks in regulatory frameworks designed for more complex regional or global banks.
Federal Reserve Bank of St. Louis
In the CSBS survey, community bankers disclosed that nearly a quarter of their compliance costs, 24.9%, were dedicated to anti-money-laundering efforts. Another 22.5% of the costs were linked to consumer protection measures, and 10.2% were related to Community Reinvestment Act compliance. The largest portion of compliance costs, 27.2%, was attributed to safety and soundness regulation.
Other Noteworthy Findings
Interestingly, the CSBS survey found that community banks had little interest in cryptocurrency, with 91% of respondents stating they do not offer crypto services and have no plans to do so in the coming year. In contrast, 46.7% of respondents saw potential in the use of AI for customer interactions in the next five years. Lloyd Hamm, Jr., president and CEO of Massachusetts-based River Run Bancorp, anticipates the use of AI in commercial credit reviews, which could improve credit quality, enhance problem identification, and significantly reduce the cost of annual reviews.
Despite the decrease in regulatory concerns, cybersecurity remains high on the list of community bankers’ major worries. Risks related to net interest margins and core deposit growth also continue to cause concern. The survey results offer insights into where supervisors may focus their attention in the coming year, with a continued look at how smaller banks generate revenue given concerns over net interest margins and deposit growth.
As the community banking sector adjusts to these changes and anticipates further regulatory relief, the coming year will provide further insights into whether bankers have seen the regulatory burden improve.
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